The US-China trade war has intensified with the US decision to raise the tariff to 15 percent on $112 billion worth of goods imported from China, including clothing, shoes and consumer electronics, effective September 1.

On the same day, China’s decision on raising tax on the $75 billion worth of farm produce, cars, oil and gas worth of imports from the US also took effect. On September 2, China filed to sue the US at the WTO, the third lawsuit raised by the country related to taxation.

Meanwhile, the US warned it would continue taxing 25-30 percent on $250 billion worth of Chinese goods from October 1, and taxing 15 percent on all the other goods from China commencing December 1.

The US-China trade war has intensified with the US decision to raise the tariff to 15 percent on $112 billion worth of goods imported from China, including clothing, shoes and consumer electronics, effective September 1.

The 13th negotiation round between the two parties, slated for early October in the US is uncertain, because they still cannot get a consensus on the time and content of negotiations.

On August 23, the US President Donald Trump tweeted, ordering American companies to immediately find alternatives to China and urged them to bring their companies home. Trump also criticized General Motors of making heavy investments in China and questioned whether it should move back to the US.

In fact, many multi-national groups began thinking of relocating parts of their production activities out of China even before the US-China trade war. They follow the so-called ‘China+1’ principle, trying to diversify supply sources to avoid reliance. They can see disadvantages in the Chinese business environment because of the labor cost increase in the Chinese policy on protecting domestic enterprises.

Ted Decker, vice president of Home Depot, which supplies building materials and interior and exterior furnishings, said he doesn’t know any supplier which still has not relocated parts of their production out of China. The suppliers of Home Depot have moved to Taiwan, Vietnam, Thailand and Indonesia.

CNBC reported that Vietnam, Malaysia and Indonesia have emerged as the places that can partially replace China's industrial production capacity. Labor-intensive industries like textiles and footwear tend to move to Bangladesh, Cambodia or India while consumer electronics tend to move to Vietnam, where manufacturing facilities of Intel, Samsung, Canon and LG are located.

However, the Wall Street Journal commented that Vietnam and other Southeast Asian countries will not likely replace China as the production base of the world.

A solution chosen by many investors is building facilities in Vietnam that make products for export to the US, while maintaining activities in China to provide products to the domestic market and non-Chinese markets.

Kim Chi 

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